Question
Halliburton is in the oil and gas equipment and services industry. Suppose that Halliburton managers are considering a new oilfield servicing operation that would cost
Halliburton is in the oil and gas equipment and services industry. Suppose that Halliburton managers are considering a new oilfield servicing operation that would cost $500 million. Its book debt-to-equity ratio would increase only slightly, so its credit ratings would not change. Halliburton managers consider raising funds for the project by selling $500 million in new bonds with a maturity of 10 years. The managers judge that the proposed project would have about the same risk as Halliburtons existing operations. Halliburton has an outstanding bond that matures in about 10 years and has a yield to maturity of 7.641%. Treasury bonds with 10 years to maturity have yields of 2.84%. Estimate the required annual rate of return on Halliburtons new bond that the company issues to fund the new project.
Do not round at intermediate steps in your calculation. Round your answer to 3 decimal places. Do not type the % symbol.
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